Individuals or households often have some scope for choice of peer groups, whether through the selection of neighborhood of residence, school, or friends. This study addresses the estimation of peer group effects in cases in which measures of peer group influence are potentially endogenous variables. Using a rich data set on individual behavior, the paper explores teenage pregnancy and school dropout behavior. For both cases, the estimation of a straight-forward single-equation model yields statistically significant peer group effects; however, these effects disappear under simultaneous equation estimation. The results are robust and suggest the need for careful modeling of the choice of peer groups.

The aggregate quarterly consumption functions suggested by DuesenberryEckstein-Fromm (DEF) and by Zellner are recomputed and extended through 1960 on the basis of more recent data. While the actual fit of the DEF consumption function is substantially lower than previously reported, the coefficient estimates remain reasonably stable throughout the period. The Zellner consumption function fits well but gives rather low estimates of the long run marginal propensity to consume and a rather high and hard to interpret coefficient for the liquid assets variable. It is found also that the Durbin-Watson statistic presents a misleading picture of the amount of actual serial correlation in the residuals of these functions and an alternative nonparametric test is suggested.

Individuals or households often have some scope for choice of peer groups, whether through the selection of neighborhood of residence, school, or friends. This study addresses the estimation of peer group effects in cases in which measures of peer group influence are potentially endogenous variables. Using a rich data set on individual behavior, the paper explores teenage pregnancy and school dropout behavior. For both cases, the estimation of a straightforward single-equation model yields statistically significant peer group effects; however, these effects disappear under simultaneous equation estimation. The results are robust and suggest the need for careful modeling of the choice of peer groups. Copyright 1992 by University of Chicago Press.